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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Eric9064 on January 06, 2017, 08:15:59 AM

Title: 401(k) with ADP
Post by: Eric9064 on January 06, 2017, 08:15:59 AM
My wife's 401(k) is with ADP and the fee's are absurd. The fund she is going to invest in has an expense ratio of 1.26%. Her company has a 2% match. 

Does it make sense for her to max the 401(k) given the high fees?

Title: Re: 401(k) with ADP
Post by: NoStacheOhio on January 06, 2017, 09:16:58 AM
What are the fund choices? Are there any fees beyond high expense ratios?

Mathematically, if that's the only fee, you're still probably better off maxing it.
Title: Re: 401(k) with ADP
Post by: kendallf on January 06, 2017, 09:22:14 AM
Mathematically, and assuming you have all of these options, I'd invest in this order:

401k up to the match (get the free money!)
HSA to max (if you have a HDHP, look up the Mad Fientist's articles on using this as an investment account)
IRA max for both of you
Finish filling up the 401k

Title: Re: 401(k) with ADP
Post by: FIPurpose on January 06, 2017, 09:43:16 AM
Several questions that may affect how you approach this:

1. How long is your wife planning on working there?
2. Does the 401(k) allow in service withdraws?
3. Is there a brokerage option?
Title: Re: 401(k) with ADP
Post by: Eric9064 on January 06, 2017, 10:27:51 AM
Thanks for the responses. In answer to some of the questions:

- The fund is a target retirement fund, specifically the T. Rowe Price Retirement 2055 fund. There are not better options available in the plan.
- I doubt my wife will spend her entire career at this company, but she will likely be there for another couple years. If and when she does leave, we would roll the 401(k) over into a vanguard Traditional IRA.
- The plan does appear to allow for in-service withdraws. If I understand this correctly, could we not then periodically roll-over amounts in the 401(k) into a traditional IRA?
- FIPurpose - I am not familiar with the concept of a brokerage option, can you explain?
- We do not have access to an HSA, but our plan is to max out both our Roth IRA's (via a backdoor roth) and both our 401(k)s.
Title: Re: 401(k) with ADP
Post by: msilenus on January 06, 2017, 10:38:44 AM
- I doubt my wife will spend her entire career at this company, but she will likely be there for another couple years. If and when she does leave, we would roll the 401(k) over into a vanguard Traditional IRA.

This is a really strong reason to do it.  You'll only pay the 1.26% a few times.  One napkin way to do this math is to estimate the difference between your retired and working tax rates and compare that to X * 1.26%, where X is the number of years that she'll be there.  The match sweetens things rom there.

EDIT: And I think you're right that in-service withdrawals mean you can rollover.  I didn't know this was possible with pretax accounts.  That should allow you to keep X below 1.0.
Title: Re: 401(k) with ADP
Post by: FIPurpose on January 06, 2017, 10:59:41 AM
Thanks for the responses. In answer to some of the questions:

- The fund is a target retirement fund, specifically the T. Rowe Price Retirement 2055 fund. There are not better options available in the plan.
- I doubt my wife will spend her entire career at this company, but she will likely be there for another couple years. If and when she does leave, we would roll the 401(k) over into a vanguard Traditional IRA.
- The plan does appear to allow for in-service withdraws. If I understand this correctly, could we not then periodically roll-over amounts in the 401(k) into a traditional IRA?
- FIPurpose - I am not familiar with the concept of a brokerage option, can you explain?
- We do not have access to an HSA, but our plan is to max out both our Roth IRA's (via a backdoor roth) and both our 401(k)s.

Yep so just rollover the amounts each year and you can control it in an IRA manager of your choice. Some 401(k)s allow a brokerage option that means you can purchase anything on the open market. Usually it's a little bit more paper work, but it would allow you to buy SPY or any other number of ETFs. You usually have to manually instantiate them.
Title: Re: 401(k) with ADP
Post by: SeattleCPA on January 06, 2017, 02:54:56 PM
My wife's 401(k) is with ADP and the fee's are absurd. The fund she is going to invest in has an expense ratio of 1.26%. Her company has a 2% match. 

Does it make sense for her to max the 401(k) given the high fees?

I think it does for the good reasons other posters have shared.

One other possibly useful comment: ADP fees vary depending on the investment options offered. E.g., with clients using ADP's 401(k), I'll often recommend they pay a higher ADP annual fee (like $4K a year-ish rather than $2K or $1K a year) and then get access to all the cheap options like Vanguard, etc.

When you have only those "higher cost" investment options, it's because the employer has chosen an economical plan where the investment options within the plan have to, er, pad their fees and then carry part of the cost of the plan's operation.